At Pyrford our primary aim is to preserve our clients’ capital. This overarching philosophy is at the heart of everything we do and we believe it has stood us in excellent stead over the years through many challenging periods, including the Global Financial Crisis of 2008 and the Chinese stockmarket crash of 2015, to name but a few.
We believe the current markets are no less challenging, with the huge amount of money printing, known in the investor world as ‘quantitative easing’, meaning that the central banks of many developed economies have a huge amount of debt on their balance sheets.
This policy tool has pushed yields on government bonds to historically low levels which means that parts of this asset class are no longer the ‘safe haven’ they once were.
Is it sensible to put your money into government bonds which are barely paying any income return, with some developed economy government debt even having negative yields? Effectively you are paying them to hold that asset!
There are challenges such as these across the investment spectrum but we can’t simply shun all asset classes, we still have a duty to try and grow our clients’ money to meet the future liabilities that they are investing for.
Our job is to seek out the bright spots in an increasingly dull investment environment, without taking excessive risk, and although we currently view markets through a cautionary lens, we do believe there are bright spots out there.
One such example is Asia ex Japan.
We believe Asia ex Japan equity markets offer some of the best value. They have not been absurdly inflated by money printing because many of the constituent countries haven’t needed to.
They have the fundamental economic drivers of growth – labour force and productivity growth – in place. Demographics in this region are the most attractive on the planet outside the largely uninvestable Middle East and Africa.
These demographics put Europe and Japan in the shade and unlike workers in the West, employees in Asia ex Japan save their money. Savings drives investment and investment drives productivity.
The result is that these economies were able to withstand the effects of the Global Financial Crisis far more resiliently and have continued to generate attractive levels of growth in subsequent years. Superior long-term economic growth provides the tailwind of revenue growth that benefits the companies that operate in these economies.
Asia continues to be under-represented in the world economy and global equity markets – not a situation we expect to persist in the long term. Asia ex-Japan accounts for 58 per cent of the global population but only 27 per cent of world output and less than 10 per cent of global equity allocation. We believe it will catch up and thus provides an investment opportunity.
Pyrford International Ltd (Pyrford) is an independent investment boutique operating as part of BMO Global Asset Management and is authorised and regulated by the Financial Conduct Authority.
For professional investors only. Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any products that may be mentioned.
